Cipher reports fiscal 2006 year-end results



    Toronto Stock Exchange Symbol: DND

    MISSISSAUGA, ON, March 7 /CNW/ - Cipher Pharmaceuticals Inc. (TSX: DND)
today announced its financial and operational results for the fourth quarter
and fiscal year ended December 31, 2006.

    
    Fiscal 2006 Summary
    -------------------

    -  Received final approval from the U.S. Food and Drug Administration
       (FDA) for CIP-FENOFIBRATE under the label Lipofen(TM)
    -  Received final approval in Canada for CIP-FENOFIBRATE under the label
       Fenomax(TM)
    -  New Drug Application (NDA) for once-daily tramadol accepted for review
       by FDA with an action date under the Prescription Drug User Fee Act
       (PDUFA) of May 3, 2007
    -  Received approvable letter from the FDA for CIP-ISOTRETINOIN; Cipher's
       response accepted as a complete response with an action date under the
       PDUFA of April 27, 2007
    -  Announced appointment of Larry Andrews to position of Chief Executive
       Officer; Dr. John Mull remains Chairman of the Board of Directors
    -  Strengthened regulatory and clinical affairs capabilities with
       appointment of Dr. Jason Gross as Vice President, Scientific Affairs.
    

    "Fiscal 2006 saw us obtain final approval in the U.S. and Canada for
CIP-FENOFIBRATE and achieve key regulatory milestones for CIP-TRAMADOL ER and
CIP-ISOTRETINOIN, both of which have PDUFA dates in the next several months,"
said Larry Andrews, President and CEO of Cipher. "In addition to focusing on
out-licensing and commercialization activities for these three products, we
are adding resources to support our activities in a number of areas, including
pipeline evaluation and selection."

    Financial Review
    ----------------

    Fourth-quarter research and development (R&D) expenses decreased from
$4.2 million in 2005 to $0.4 million in 2006 as the majority of the clinical
work done on the Company's products in 2006 was completed earlier in the year.
Operating, general and administrative (OG&A) expenses for the fourth quarter
of 2006 were $1.4 million, compared with $0.9 million in the same period last
year. Net loss for the three months ended December 31, 2006 was $2.0 million
($0.08 per basic share), compared with a net loss of $5.1 million ($0.24 per
basic share) in the same period last year.
    R&D expenses for fiscal 2006 were $8.5 million, compared with
$14.1 million for the 12-month period ended December 31, 2005. The decrease in
R&D spending reflects the advanced stage of development of the Company's
current products. OG&A expenses for fiscal 2006 were $4.0 million, compared
with $3.1 million for the 12 months ended December 31, 2005. The increase in
OG&A over the prior year primarily reflects higher compensation expenses
resulting from stock options issued during the year, as well as an increase in
personnel to support growth plans.
    The loss from continuing operations(1) for fiscal 2006 was $12.1 million
($0.51 per basic and diluted share), compared with loss from continuing
operations of $16.7 million ($0.79 per basic and diluted share) for the
12-month period ended December 31, 2005.
    As at December 31, 2006, Cipher had cash and cash equivalents of
$15.1 million, compared with $16.6 million as at December 31, 2005.

    Drug Development Update
    -----------------------

    Cipher submitted an NDA to the FDA for CIP-TRAMADOL ER in June 2006, and
the NDA was accepted for review during the third quarter of 2006 with an
action date under the Prescription Drug User Fee Act (PDUFA) of May 3, 2007.
The NDA contains data from six completed pharmacokinetic studies and five
Phase III studies (three of these providing pivotal efficacy data and two
providing long-term safety data).
    During the second quarter of 2006, the Company announced it had received
an approvable letter from the FDA pertaining to its NDA for CIP-ISOTRETINOIN.
In its letter, the FDA requested that the Company, prior to receiving
approval, provide additional clinical data and some further details relating
to chemistry, manufacturing and controls (CMC) for the product. After
reviewing the FDA's requests, the Company initiated two small Phase I studies,
which were successfully completed during the third quarter. The results of
these studies were included with Cipher's response to the FDA approvable
letter, which was submitted in October 2006. Subsequent to year end, the
Company announced that the response to the approvable letter was accepted as a
complete, Class 2 response and will be reviewed by the FDA with an action date
under the PDUFA of April 27, 2007.
    In January 2006, the Company received final approval from the FDA for
CIP-FENOFIBRATE (approved under the label as Lipofen), followed by final
approval from the Therapeutic Products Directorate of Health Canada in
February 2006. During the second quarter of 2006, the Company completed an
agreement with Oryx Pharmaceuticals Inc., a privately-owned specialty
pharmaceutical company, to market and distribute the product in Canada. The
product is expected to be introduced in select markets in the second quarter
of 2007.
    Discussions with potential commercial partners for the U.S. market are at
various stages for each of the three products, with priority being given to
Lipofen.

    Regulatory Filing Update
    ------------------------

    Cipher also advises that its master licensing and clinical supply
agreement with Galephar Pharmaceutical Research Inc., which is referred to in
the "Material Contracts" section of the Company's Annual Information Form, is
available on SEDAR at www.sedar.com.

    Notice of Conference Call
    -------------------------

    Cipher will hold a conference call today, March 7, 2007, at 10:00 a.m.
(ET) to discuss its financial results and other corporate developments. To
access the conference call by telephone, dial 416-644-3420 or 1-800-731-5319.
A live audio webcast of the call will be available at www.cipherpharma.com.
The webcast will be archived for 90 days.

    About Cipher Pharmaceuticals Inc.
    Cipher Pharmaceuticals is a drug development company focused on
commercializing novel formulations of successful, currently marketed molecules
using advanced drug delivery technologies. Cipher's strategy is to in-license
products that incorporate proven drug delivery technologies and advance them
through the clinical development and regulatory approval stages, after which
the products are out-licensed to international partners. Because Cipher's
products are based on proven technology platforms applied to currently
marketed drugs, they are expected to have lower approval risk, shorter
development timelines and significantly lower development costs. Cipher
currently has three late-stage drugs in its pipeline. The Company's lead
compound, CIP-FENOFIBRATE, received final approval from the U.S. Food and Drug
Administration and Health Canada in the first quarter of 2006. In addition,
Cipher is developing formulations of the pain reliever tramadol (currently
under regulatory review by the FDA) and the acne treatment isotretinoin
(currently under regulatory review by the FDA).
    Cipher is listed on the Toronto Stock Exchange under the symbol 'DND' and
has approximately 24 million shares outstanding. For more information, please
visit www.cipherpharma.com.

    Forward-Looking Statements

    Statements made in this news release, other than those concerning
historical financial information, may be forward-looking and therefore subject
to various risks and uncertainties. Some forward-looking statements may be
identified by words like "may", "will", "anticipate", "estimate", "expect",
"intend", or "continue" or the negative thereof or similar variations. Certain
material factors or assumptions are applied in making forward-looking
statements and actual results may differ materially from those expressed or
implied in such statements. Factors that could cause results to vary include
those identified in the Company's Annual Information Form and other filings
with Canadian securities regulatory authorities, such as the applicability of
patents and proprietary technology; possible patent litigation; regulatory
approval of products in the Company's pipeline; changes in government
regulation or regulatory approval processes; government and third-party payer
reimbursement; dependence on strategic partnerships for product candidates and
technologies, marketing and R&D services; meeting projected drug development
timelines and goals; intensifying competition; rapid technological change in
the pharmaceutical industry; anticipated future losses; the ability to access
capital to fund R&D; and the ability to attract and retain key personnel. All
forward-looking statements presented herein should be considered in
conjunction with such filings. The Company does not undertake to update any
forward-looking statements; such statements speak only as of the date made.


    
    -------------------
    (1) During the first quarter of 2005, Cipher sold its non-core
        pharmaceutical research services business, Pharma Medica Research
        Inc., to focus entirely on growing its core drug development
        business. The results of Pharma Medica are reported as a discontinued
        operation. The sale of Pharma Medica included a deferred payment of
        $4.0 million, which is repayable to Cipher in equal annual
        instalments over a five-year period. Cipher received the first of
        these instalments in January 2006.



    Cipher Pharmaceuticals Inc.
    Consolidated Balance Sheets
    (in thousands of dollars)

    As at                                          December 31,  December 31,
                                                          2006          2005

    ASSETS
    Current assets
    Cash and cash equivalents                       $   15,077    $   16,616
    Other receivables                                      160           305
    Income taxes receivable                                 95            95
    Other current assets                                    32            19
    Current portion of loan receivable (note 7)              -           788
    -------------------------------------------------------------------------
                                                        15,364        17,823
    Property and equipment (note 3)                         99            86
    Intangible assets (note 4)                           5,058         5,247
    Loan receivable (note 7)                             1,986         2,557

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    $   22,507    $   25,713
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES
    Current liabilities
    Accounts payable and accrued liabilities        $      921    $    3,402
    Due to related party (note 2)                          123            56
    -------------------------------------------------------------------------
                                                         1,044         3,458

    SHAREHOLDERS' EQUITY
    Share capital (note 6)                              49,891        38,783
    Contributed surplus                                 30,430        30,267
    Deficit                                            (58,858)      (46,795)
    -------------------------------------------------------------------------
                                                        21,463        22,255
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    $   22,507    $   25,713
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Cipher Pharmaceuticals Inc.
    Consolidated Statements of Operations
    (in thousands of dollars, except per share amounts)

                                                          For the year ended
                                                   December 31,  December 31,
                                                          2006          2005

    Expenses
      Operating, general and administrative         $    4,014    $    3,131
      Research and development                           8,468        14,093
      Amortization of property and equipment                23            19
      Amortization of intangible assets                    466             -
      Write down of intangible assets                        -           162
    -------------------------------------------------------------------------
                                                        12,971        17,405
    -------------------------------------------------------------------------

    Interest income - net                                  908           751
    -------------------------------------------------------------------------

    Loss from continuing operations before
     income taxes                                      (12,063)      (16,654)

    Provision for income taxes (note 5)                      -            95
    -------------------------------------------------------------------------
                                                             -            95
    -------------------------------------------------------------------------

    Loss from continuing operations                    (12,063)      (16,749)

    Income from discontinued operation (note 7)              -         8,242

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net loss for the year                           $  (12,063)   $   (8,507)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted earnings (loss)
     per share (note 8)

      Continuing operations                         $    (0.51)   $    (0.79)
      Discontinued operation                                 -          0.39
    -------------------------------------------------------------------------
                                                    $    (0.51)   $    (0.40)



    Cipher Pharmaceuticals Inc.
    Consolidated Statements of Deficit
    (in thousands of dollars)

                                                          For the year ended
                                                   December 31,  December 31,
                                                          2006          2005

    Deficit, beginning of year                      $  (46,795)   $  (38,288)

    Net loss for the year                              (12,063)       (8,507)
    -------------------------------------------------------------------------

    Deficit, end of year                            $  (58,858)   $  (46,795)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Cipher Pharmaceuticals Inc.
    Consolidated Statements of Cash Flows
    (in thousands of dollars)

                                                          For the year ended
                                                   December 31   December 31
                                                          2006          2005

    Cash provided by (used in)

    Operating activities
      Net loss from continuing operations           $  (12,063)   $  (16,749)
      Items not affecting cash
        Amortization of property and equipment              23            19
        Amortization of intangible assets                  466             -
        Write down of intangible assets                      -           162
        Non cash stock compensation                        449           148
        Imputed interest (note 7)                         (241)         (233)
    -------------------------------------------------------------------------
                                                       (11,366)      (16,653)
      Net change in non-cash working capital
       items (note 9)                                   (2,282)        2,808
      Drawdown of loan receivable (note 7)                 800             -
      Exercise of stock options settled in
       cash (note 6)                                      (286)            -

      Discontinued operation (note 7)                        -           (94)
    -------------------------------------------------------------------------

                                                       (13,134)      (13,939)
    -------------------------------------------------------------------------

    Investing activities
      Purchase of property and equipment                   (36)          (31)
      Increase in intangible assets                       (277)         (294)
      Proceeds from sale of Pharma Medica
       Research Inc. (note 7)                                -        14,000
      Proceeds from loan receivable (note 7)               800             -
      Discontinued operation (note 7)                        -           (50)
    -------------------------------------------------------------------------

                                                           487        13,625
    -------------------------------------------------------------------------

    Financing activities
      Issuance of share capital (note 6)                10,907             -
      Proceeds from exercise of stock
       options (note 6)                                    201           129
      Discontinued operation (note 7)                        -           (97)
    -------------------------------------------------------------------------

                                                        11,108            32
    -------------------------------------------------------------------------

    Decrease in cash and cash equivalents               (1,539)         (282)
    Cash and cash equivalents, beginning of year        16,616        16,898
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of year          $   15,077    $   16,616
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Cipher Pharmaceuticals Inc.
    Notes to Consolidated Financial Statements
    December 31, 2006
    (in thousands of dollars, except per share amounts)

    1   Summary of significant accounting policies

        Basis of presentation

        The consolidated financial statements have been prepared in
        accordance with Canadian generally accepted accounting principles.

        Basis of consolidation

        The consolidated financial statements include the accounts of the
        Company and its subsidiaries. All intercompany accounts and
        transactions with subsidiaries have been eliminated.

        Translation of foreign currencies

        Revenues and expenses of the Company are translated into Canadian
        dollars using the exchange rate in effect at the transaction date.
        Monetary assets and liabilities are translated using the rate in
        effect at the balance sheet date and non-monetary items are
        translated at historical exchange rates. Related exchange gains and
        losses are included in the determination of net loss for the year.

        Use of estimates

        The preparation of the consolidated financial statements requires
        management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities at the date of the financial
        statements and the reported amounts of revenue and expense during the
        reporting periods presented. Actual results could differ from the
        estimates.

        Cash and cash equivalents

        Cash and cash equivalents are defined as cash and short-term deposits
        with original maturities of three months or less.

        Property and equipment

        Property and equipment are recorded at cost, less accumulated
        amortization. Amortization is computed using the declining balance
        method using the following rates estimated to amortize the cost over
        the useful lives of the assets:

        Computer equipment                   33.3%
        Computer software                    33.3%
        Furniture and fixtures                 10%
        Leasehold improvements                 20%

        Intangible assets

        Intangible assets consist of marketing and other rights relating to
        products and are initially recorded at cost. Intangible assets have a
        finite life and are amortized using the straight-line method over
        their estimated period of useful life, which is determined to be
        5 years from the date of regulatory (generally, U.S. Food and Drug
        Administration ("FDA")) approval for marketing the related product.

        Intangible assets are reviewed for impairment when events or other
        changes in circumstances indicate that the carrying amount of the
        assets may not be recoverable.

        Investment tax credits

        Investment tax credits relating to current expenditures are included
        in earnings and those related to property and equipment are applied
        to reduce the cost of the asset. Investment tax credits are recorded
        when management determines that their recovery is reasonably assured.

        Income taxes

        The Company follows the asset and liability method of accounting for
        income taxes whereby future income tax assets and liabilities are
        recognized based on the differences between the bases of assets and
        liabilities used for financial and income tax purposes. Future income
        tax assets are recognized only to the extent that management
        determines that it is more likely than not that the future income tax
        assets will be realized. Future income tax assets and liabilities are
        adjusted for the effects of changes in tax laws and rates on the date
        of enactment or substantive enactment. The income tax expense or
        benefit is the income tax payable or refundable for the year plus or
        minus the change in future income tax assets and liabilities during
        the year.

        Stock-based compensation

        The Company records compensation expense for the fair value of grants
        of stock, stock options, and other equity instruments granted to
        employees and directors subsequent to October 1, 2002.

    2   Due to related party and related party transactions

        The Company and a related party have in common the Chairman and a
        majority of members of their respective boards.

        Included in due to related party is an amount of $123 (2005 - $56)
        which relates to management and payroll services. During the year,
        the Company purchased $760 (2005 - $856) of management and payroll
        services from this related party. These transactions are measured at
        the exchange amount, which is the amount of consideration established
        and agreed to by the related parties.

    3   Property and equipment

                                                   Accumulated
        2006                                Cost  amortization           Net
        ---------------------------------------------------------------------

        Computer equipment                    76            43            33
        Computer software                     20             9            11
        Furniture and fixtures                65            13            52
        Leasehold improvements                 8             5             3

                                      ---------------------------------------
                                             169            70            99
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                                                   Accumulated
        2005                                Cost  amortization           Net
        ---------------------------------------------------------------------

        Computer equipment                    73            30            43
        Computer software                     10             5             5
        Furniture and fixtures                42             8            34
        Leasehold improvements                 8             4             4

                                      ---------------------------------------
                                             133            47            86
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    4   Intangible assets

        During Fiscal 2001, the Company entered into certain agreements with
        Galephar Pharmaceutical Research Inc. ("Galephar") for the rights to
        package, test, obtain regulatory approvals and market certain
        products in various countries around the world. In accordance with
        the terms of the agreements as at December 31, 2006, the Company has
        acquired these intangible rights through an investment in three
        separate series of preferred shares of Galephar.

        The Company may be required to pay additional amounts, in respect of
        the CIP-ISOTRETINOIN and CIP-TRAMADOL ER intangible rights, to
        Galephar of up to $1,748 (US $1,500) if certain future milestones are
        achieved as defined in the agreements. These additional payments will
        be made in the form of additional Galephar preferred share purchases.
        The Galephar agreement also requires the Company to pay Galephar
        certain royalty amounts based on revenue generated by the related
        products.

        The recoverability of these intangible rights is dependent upon
        sufficient future licensing fees/royalties being generated from the
        related products currently under development and commercialization.

        A summary of selected 2006 developments related to the products
        currently under development/commercialization is as follows:

        i)   In January 2006, the Company received final approval from the
             U.S. Food and Drug Administration ("FDA") for its novel
             formulation of the active ingredient fenofibrate, which is used
             in the treatment of hyperlipidemia. CIP-FENOFIBRATE received
             approval for three unique fenofibrate dosages: 50, 100 and
             150 mg. CIP-FENOFIBRATE is the first product from the Company's
             pipeline to successfully receive FDA approval and the Company is
             actively pursuing opportunities to secure a U.S. commercial
             distribution agreement.

        ii)  On February 20, 2006, the Company received final approval for
             CIP-FENOFIBRATE from the Therapeutic Products Directorate of
             Health Canada through a Notice of Compliance. On April 12, 2006,
             the Company announced it has completed an agreement with Oryx
             Pharmaceuticals Inc., a privately-owned specialty pharmaceutical
             company, to market and distribute CIP-FENOFIBRATE in Canada.

        iii) On May 1, 2006, the Company received an approvable letter from
             the FDA pertaining to its New Drug Application ("NDA") for
             CIP-ISOTRETINOIN requesting additional clinical data and some
             further details relating to chemistry, manufacturing, and
             controls for the product.

        iv)  During the third quarter of 2006, the NDA for CIP-TRAMADOL ER,
             which was submitted on June 29, 2006, was accepted for review by
             the FDA. Accordingly, an additional purchase of Galephar
             preferred shares of $277 (US $250) was made in October 2006.

        Upon receipt of FDA approval in January 2006, the Company began
        amortizing the intangible rights related to CIP-FENOFIBRATE.
        Currently, no other products have FDA approval.

        A description of the Company's intangible assets is as follow:

                                                   Accumulated
                                                  amortization
                                                     and write
        2006                                Cost         downs           Net
        ---------------------------------------------------------------------

        CIP-FENOFIBRATE                    3,014         1,148         1,866
        CIP-ISOTRETINOIN                   1,883           426         1,457
        CIP-TRAMADOL ER                    2,161           426         1,735
                                      ---------------------------------------
                                           7,058         2,000         5,058
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


                                                   Accumulated
                                                  amortization
                                                     and write
        2005                                Cost         downs           Net
        ---------------------------------------------------------------------

        CIP-FENOFIBRATE                    3,014           682         2,332
        CIP-ISOTRETINOIN                   1,883           426         1,457
        CIP-TRAMADOL ER                    1,884           426         1,458
                                      ---------------------------------------
                                           6,781         1,534         5,247
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    5   Income taxes

        The effective income tax rate on earnings (loss) is as follows:

                                                          For the year ended
                                                                 December 31,
                                                          2006          2005
                                                             $             $
        Income tax recovery at statutory rate of
         36.1% (2005 - 36.1%)                           (4,357)       (6,015)
        Non-deductible items                              (255)          178
        Valuation allowance                              4,612         5,932
                                                    -------------------------
                                                             -            95
                                                    -------------------------
                                                    -------------------------

        Future income tax assets (liabilities) of the company are as follows:

                                                                       As at
                                                                 December 31,
                                                          2006          2005
                                                             $             $
        Differences in property and equipment
         asset basis                                        15            (8)
        Non-capital loss and research and
         development expenditures carry forwards        13,284        11,164
        Intangible assets                                5,679         6,216
        Share issuance costs                               289             -
                                                    -------------------------
                                                        19,267        17,372
        Valuation allowance                            (19,267)      (17,372)
                                                    -------------------------
                                                             -            -
                                                    -------------------------
                                                    -------------------------

        The Company has available to reduce future federal income tax payable
        investment tax credits of approximately $153, which expire in 2013.

        The Company has approximately $40,108 in non-capital loss
        carryforwards and research and development expenditures as at
        December 31, 2006, which are available to reduce future years'
        taxable income and the loss carryforwards begin to expire in fiscal
        2010.

    6   Share capital

        Authorized share capital

        The authorized share capital consists of an unlimited number of
        preference shares, issuable in series, and an unlimited number of
        voting common shares.

        Issued share capital

        The following is a summary of the changes in share capital from
        December 31, 2004 to December 31, 2006:

                                                     Number of
                                                 common shares        Amount
                                                 (in thousands)            $

        Balance outstanding - December 31, 2004         21,213        38,654
        Options exercised during 2005                      123           129
                                                    -------------------------
        Balance outstanding - December 31, 2005         21,336        38,783
                                                    -------------------------
        Options exercised during 2006                      200           201
        March 14, 2006 public offering (a)               2,500        10,907
                                                    -------------------------
        Balance outstanding - December 31, 2006         24,036        49,891
                                                    -------------------------
                                                    -------------------------

        (a) On March 14, 2006, the Company issued 2.5 million common shares
            pursuant to the completion of a public offering. Net proceeds
            from the offering after considering share issuance costs of
            $1,093 amounted to $10,907.

        Stock option plan

        The following is a summary of the changes in the stock options
        outstanding from December 31, 2004 to December 31, 2006:

                                                                    Weighted
                                                                     average
                                                     Number of      exercise
                                                       options         price
                                                 (in thousands)            $

        Balance outstanding - December 31, 2004            698          1.51
          Options granted during 2005                      150          1.90
          Options exercised during 2005                   (123)         1.05
                                                    -------------------------
        Balance outstanding - December 31, 2005            725          1.67
                                                    -------------------------
          Options granted during 2006 (a)                  489          3.91
          Options exercised in exchange for common
           shares during 2006                             (200)         1.00
          Options exercised for cash consideration
           of $286 during 2006 (b)                        (125)         2.35
                                                    -------------------------
        Balance outstanding - December 31, 2006            889          2.96
                                                    -------------------------
                                                    -------------------------

        At December 31, 2006, 162,500 options were fully vested and
        exercisable.

        (a) During 2006, the Company issued 488,966 stock options (2005 -
            150,000) under the employee and director stock option plan, which
            have exercise prices ranging from $2.90 to $4.33 (2005 - $1.90),
            25% of which vest on either January 1 or June 28 of each year,
            commencing in 2007, and all of which expire in 2016. Total
            compensation cost to be recognized under these options is
            estimated to be $1,551 (2005 - 228) and will be recognized over
            the vesting period of the stock options.

        The stock options issued during 2006 were valued using the
        Black-Scholes option pricing model with the following assumptions:

        Risk-free interest rate            3.90% - 4.30%
        Expected life                           10 years
        Expected volatility                          75%
        Expected dividend                            Nil

        (b) During the three months ended March 31, 2006, 125,000 stock
            options were exercised in exchange for cash consideration of
            $286 representing the difference between the exercise price of
            the options and the market value of the related common shares on
            the exercise date. The cash consideration of $286 represents
            stock option compensation expense of which $48 was expensed
            during 2006 and $238 was expensed in prior years. Subsequent to
            March 31, 2006, the Company no longer intends to make cash
            payments on the exercise of stock options.

        The outstanding options are summarized as follows:

                                             Number of options (in thousands)
                          Exercise    ---------------------------------------
        Expiry date          price        Vested      Unvested         Total
                                 $
        January 11, 2012      1.09           125             -           125
        September 17, 2014    2.35                         125           125
        August 8, 2015        1.90            38           112           150
        March 23, 2016        4.12             -           220           220
        June 28, 2016         4.00             -           180           180
        August 8, 2016        4.33             -            20            20
        September 13, 2016    2.90             -            69            69
                                      ---------------------------------------
                                             163           726           889
                                      ---------------------------------------
                                      ---------------------------------------

    7   Discontinued operation

        On February 28, 2005, the Company completed the sale of all the
        issued and outstanding shares of its wholly owned pharmaceutical
        research services business, Pharma Medica Research Inc. (Pharma
        Medica), to a group led by the management team of Pharma Medica.
        Consideration consisted of a cash payment of $14,000 on closing and a
        deferred payment of $4,000.

        The deferred payment is non-interest bearing and is repayable in
        annual instalments of $800 over a five year period. As the deferred
        payment is non-interest bearing, it was recorded at its fair value of
        $3,112 based on a discount rate of 9%. Imputed interest of $241 has
        been recorded on this deferred payment during the year ended
        December 31, 2006 ($233 during the year ended December 31, 2005). The
        first of five annual instalments of $800 related to this deferred
        payment was collected on January 30, 2006. In accordance with the
        terms of the deferred payment agreement, $800 of clinical services
        purchased from Pharma Medica during the twelve months ended
        December 31, 2006 have been offset against the next annual payment
        which would have been due January 30, 2007.

        The results of the operations of the pharmaceutical research services
        business have been reported as a discontinued operation.

        The summarized statements of operations for the discontinued business
        are as follows:

                                                          For the year ended
                                                                 December 31,
                                                          2006          2005

        Revenue                                              -         4,405
        Operating, general and administrative expenses       -         3,194
        Amortization of property and equipment               -           142
                                                    -------------------------
                                                             -         1,069
        Interest expense                                     -             9
                                                    -------------------------
        Income before income taxes                           -         1,060
        Provision for income taxes                           -           383
                                                    -------------------------
        Income from discontinued operation before
         gain on disposal                                    -           677
        Gain on disposal                                     -         7,565
                                                    -------------------------
        Income from discontinued operation                   -         8,242
                                                    -------------------------
                                                    -------------------------

    8   Earnings (loss) per share

        Earnings (loss) per share is calculated using the weighted average
        number of shares outstanding. The weighted average number of shares
        outstanding for the year ended December 31, 2006 was 23,488,888
        (December 31, 2005 - 21,217,850)

        As the Company had a loss from continuing operations for each of the
        periods presented, basic and diluted earnings (loss) per share from
        continuing operations are the same because the exercise of all stock
        options would have an anti-dilutive effect.

    9   Statement of cash flows

                                                          For the year ended
                                                                 December 31,
                                                          2006          2005
        Net change in non-cash working capital items         $             $
          Other receivables                                145         2,087
          Income taxes receivable                            -            95
          Other current assets                             (13)            1
          Accounts payable and accrued liabilities      (2,481)          723
          Net change in due to related party                67           (98)
                                                    -------------------------
                                                        (2,282)        2,808

    10  Financial instruments

        Credit risk exposure

        Financial instruments that potentially subject the Company to credit
        risk consist of cash, other receivables, and a loan receivable. The
        Company places its cash with high credit quality financial
        institutions. The Company reviews the collectibility of its other
        receivables and loan receivable on a regular basis and maintains a
        provision for doubtful accounts when there is a risk of
        non-collection of these receivable balances.

        Fair values of financial assets and liabilities

        The fair values of cash, other receivables, accounts payable and
        accrued liabilities, and amounts due to related party included in the
        consolidated balance sheets approximate their carrying amounts due to
        the relatively short period to maturity of the instruments. The fair
        value of the loan receivable is $1,986, based on a discount rate of
        9%.

    11  Comparative figures

        Certain comparative figures have been reclassified to conform to the
        current year's financial statement presentation.
    

    %SEDAR: 00020415E




For further information:

For further information: Craig Armitage, Investor Relations, The Equicom
Group, (416) 815-0700 ext 278, (416) 815-0080 fax, carmitage@equicomgroup.com;
Larry Andrews, President and CEO, Cipher Pharmaceuticals, (905) 602-5840 ext
24, (905) 602-0628 fax, landrews@cipherpharma.com


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